Sick Pay Provision in ExperimentalLabor Markets

Sick pay is a common provision in most labor contracts. This paperemploys an experimental gift-exchange environment to explore two relatedquestions using both managers and undergraduates as subjects.First, do workers reciprocate generous sick pay with higher effort? Second,do firms benefit from offering sick pay? Our main finding is thatworkers do reciprocate generous sick pay with higher effort. However,firms benefit from offering sick pay in terms of profits if and only ifthere is competition among firms for workers. Consequently, competitionleads to a higher voluntary provision of sick pay relative to amonopsonistic labor market....